Help! Accountants fees.

janie78 · Apr 11, 2008

I'm hoping someone can give me some advice!

I instructed my accountant a year ago after experiencing some cashflow problems, partly as a result of my own mistakes in the first couple of years in business, and partly due to poor advice from my revious accountant!

The new guy was fully aware of our cashflow situation from the offset and advised us to separate our two salons into separate legal entities in order to reduce the VAT liability as they both run under the threshold.

I did this, and a few other adjustments which have made the business much more efficient, and although we are now effectively starting from scratch, only just covering costs, I have been breathing a sigh of relief that we have managed to pull things back and stop running at a loss.

My problem is this; upon our first meeting, we were not given any idea of the annual fee hewould be charging. The contract stated that work would be invoiced throughout the year as completed, and the initial forecast we were given budgeted £150 per month for accountacy fees (he was aware that we had previously been paying £75.) Throughout the year I have paid £350 for each VAT return completed and a further 300 - 400 quid for personal returns and company return.

I have now received a bill for nearly £5,000 for all other work completed which i assume must be a few emails, 2 meetings and the draft accounts although i have asked for a breakdown.

Surely this is a ridiculous amount to expect the owner of 2 very small Hair salons? Overall we would have paid almost £6,000 for the year!!! Can anyone give me any advice before I have a nervous breakdown?! He's threatening legal action now if i dont pay up, but he knows my personal and business situation so he must know the money isn't there!

Sorry to waffle but he's really stressing me out!

Jenni384 · Apr 11, 2008

Hi Janie
Sorry to hear of your problems.
Firstly, that sounds like an incredibly high amount of money.

Did your new accountant provide you with an Engagement Letter?
If so, what does it say regarding fees?

CassioAcc · Apr 11, 2008

Again, sorry to hear about your problems.

You really need to push for the breakdown so he can justify those costs.

If you did get any terms of engagement, is there a section on a complaints process ?

janie78 · Apr 11, 2008

I'm in the process of rooting out the original letter of engagement as it's still in storage from our house move, but i've got a copy of the recent one sent to me now that we've restructured the company into two,as they were expecting to act on behalf of the two new limited companies (fat chance!)

- It's basically a standard letter which seems to be the same as the last one stating that "our fees are computed on the basis of time spent on your affairs and responsibility involved by the partners and staff of the firm.Unless otherwise agreed (which it wasn't), our fees will be charged separately for eachmain class of work and willbe billed at appropriate intervals during the course of the year"

- I assumed that the £1,500 i've spent throughout the year so far was this, possibly with another few hundred for the end of year stuff.

With regard to complaints,it states that theyundertake to look in to any complaint carefully and promptly and do everything reasonable to put matters right.

Since getting the shocking bill, i've been in panic mode,trying to find away to pay it (remortgaging my house and lending from family), all to no avail, and have advised him of this everystep of the way.

He's not been particularly patient, and it's only since he's been threatening court action that i've been mentioning it to different professional people who've almost choked when i've told them the fees - which has made me think I need to challenge him!

Fernhurst Solutions Ltd · Apr 11, 2008

It sounds a terrible situation and seems to me that he is taking advantage of the situation ..... I would ask for a full breakdwon of the bill but would contact a Solicitor to see if you can do anything legally about it.

If you would like to contact me for a quote, or PM me your details and I'll contact you at a mutually appropriate time

janie78 · Apr 11, 2008

Thank you Andrew, will do.

I was under the impression that fees were charged at a percentage of the companies turnover? Still a bit new to the whole subject really - which is obviously part of my problem!!

Shouldn't hehaveedvised me along the way to make provisions for this? He could, essentially, ruin the business with the cost of his advice!

I formed the companied myself, do all of the payroll and PAYE and had reasonably tidy files (althoughnow I havestarted to do everything myself using TAS software, with a seccond hard copy like i used to!)

I'll bein touch for a quote.

Thanks again

KM-Tiger · Apr 11, 2008

Jenni@FarrantFrost said:
.....that sounds like an incredibly high amount of money.....

It's very, very high. I pay a lot less than that for a business with a much higher turnover, and that includes advice during the year as well as end of year stuff.

Does this accountant belong to a professional body? Do they have a complaints procedure?

Given the threat of legal action, I would think you would do well to write saying you dispute the value of the invoice, and you will not be settling until the dispute is resolved.

janie78 · Apr 11, 2008

Thanks for the advice! I just find it really weired that he knew the business was running at a loss to begin with and i was pregnant with my fourth child!

It seems as though he must have known that his fee would end up being our second highest creditor! Higher than all equipment finance and stock!

I can'tunderstand why a professional would act like that unless he thought he could justify it? Surely he should have told me that hecould help,but it would cost x amount, or that he couldn't really help becuse the fees would be too high?

I've been in business since I was 19 through 4 pregnancies so I can deal with a lot of pressure and stress but he's reduced me to a complete wreck because i can't see a way out! I've even been sent to the doc with a near collapse (which has never happened before!) so i've had to pass him over to my company sec (a friend of mine who's studying accountancy!), so that I can get my focus back on to sorting out the businesses and staff!

CassioAcc · Apr 11, 2008

You will find a lot of Accountants will give you a fixed fee or at least require your consent before charging additional fees. Turnover is not always a good indicator for the charge/work involved. We all know businesses are not a bottomless pit, especially small ones where cashflow is tight and a good accountant should work in the best interests of your business.

Its very good advice above to put your dispute in writing. Don't be intimidated into paying until all the facts are clear.

agnes261 · Apr 11, 2008

Janey, as everyone else has said, that is a ridiculous price to pay for your accountancy fee. Unless your records were in an awful mess and your accountant had to spend a lot of time sorting them out I can't see how he could reach this figure. £350 for a VAT Return!! I can't imagine there would be much work involved in your VAT return.
Sorry I can't offer any advice on how to deal with it, but I hope you get it resolved soon. You don't seem to have had much joy with accountants so far, but there are plenty decent ones out there.

Jenni384 · Apr 11, 2008

janie78 said:
Since getting the shocking bill, i've been in panic mode,trying to find away to pay it (remortgaging my house and lending from family), all to no avail, and have advised him of this everystep of the way.

If you are trading through a Limited Company, then it, as a separate legal entity, is liable for its bills, not you.
You mention 2 separate legal entities - if one of them is a sole trader/ partnership, then you (plus any partners) are personally liable.
Has the bill been split between the 2 legal entities?

If I were you, I would have serious issues with someone carrying out work on my behalf which I knew full well I could not afford, and not advising me until it was complete.

I think given your financial situation and given that they knew it, you have good grounds for complaint. Also, the advice given may or may not have been sound - again, an issue you can take up with them.

Write to them to formally dispute the fee, request a full breakdown of time spent.

Did they do all the bookkeeping?

In the future I suggest you find someone who will quote you a fixed fee, so you know where you are. A lot more of us operate this way these days. The 'bill every hour' and certainly the 'percentage of turnover' methods are becoming somewhat outdated.

Best of luck

Jenni

janie78 · Apr 11, 2008

Thank you everyone! I feel like i'm justified in my complaint now! Wasn't really sure whether i was just completely ignorant to accountants costs!

The bill is for work carried out from Nov 06 to Nov 07 during which time both salons were under one limited company, this meant we had a huge VAT bill that the company could not sustain. He advised me to split them into two seperate limited companies as they both run completely independantly and under the threshold individually.

I have since done this (as of Sept 07) (on my own, so he can't say it's for the work done restructuring the business cause i did it all myself!)

I've also made some redundancies and cut stock costs accross both businesses so that we can work towards starting over and becoming a bit more stable (not his advice, just my own decision)

I've only had 2 meetings with him to date, and a few emails along the way when i wanted to ask him questions regarding his advice or when he needed info, but i had had no contact from him for several months until Nov when he sent this huge bill and then a succession of intimidating emails telling me to pay up!

Since restructuring the business in September he has done no work for me, other than the preparation of the draft accounts for April 07, using all of the info i'd sent in along the way for the VAT returns (I'd not been doing comprehensive book keepinglike I am now, but everything was sent every quarter in files with pretty straightforward sections and date order.

I've been keeping the books myself for the old company from April to September and for the two new companied from Sept onwards so I can sort these ones out myself!

Estimator · Apr 11, 2008

Are you using an international company of accountants who charge £80/hr or something? I suspect not, you could easily find a local one man band who is competent and charges £25/hr. Even if your records are a mess, has he really spent weeks sorting it out? He should have told you if this was the case

I see this argument about fees a lot on this forum, accountants here who pile in and swamp newbies are noticeable by their absence when someone is in trouble.

Offer him £2K final settlement?

Dawg · Apr 11, 2008

Estimator said:
I see this argument about fees a lot on this forum, accountants here who pile in and swamp newbies are noticeable by their absence when someone is in trouble.

I'm not an accountant, nor do I use or know any of the accountants on this forum. However my impression of them is that they are generous both with their time and expertise here. I am totally at a loss to understand where you got your impression from.

If no advice has been offered to this poster it may well be that none of the accountants have seen the thread, or, and this is only a guess, that professional etiquette, or the rules of the relevant governing bodies, prevents them from commenting.

new2bus · Apr 12, 2008

I would expect invoicing per small company from small accountancy to be:-

£60 to £85 for a vat return - £350 seems high
£800 to £1000 for end of year.

The legal entities are 2 companies, so technically that is x 2 different accounts, then tax computations etc. I find it hard to justify anything over £3,000 in total.

In fairness to the accountant, the £350 VAT quarter should have raised alarm bells with you.

Bearing in mind the situation you was in when you contacted the accountancy, said accountant should use due diligence and as you were plainly in contact during the year, your position was plainly known.

I think you have already received confirmation of your doubts on this excessive amount being invoiced, by the number of posts already; therefore I would refuse paying until full justification and a breakdown is given, then inform him that you intend to use Arbitration Scheme of The Institute of Chartered Accountants (I make the presumption of Chartered Accountant here but ACCA should also have one), I believe a fee is payable to the ArbitrationAuditor and he/she will determine who will meet the costs and, if they are to be shared, in what proportion.

KM-Tiger · Apr 12, 2008

Estimator said:
...... accountants here who pile in and swamp newbies are noticeable by their absence when someone is in trouble.

But the first person to answer the OP was an accountant! And then a second helpful post further on.

Personally I'm grateful that accountants do post here to help members.

Jenni384 · Apr 12, 2008

Kent Manufacturer said:
But the first person to answer the OP was an accountant! And then a second helpful post further on.

Personally I'm grateful that accountants do post here to help members.

Ta, KM

I feel very strongly about accountants who charge over the odds like this, and I really hope the OP has some success with getting the bill reduced.

accountancyextra · Apr 12, 2008

Janie,

As he's not operating on a fixed fee (which I agree with Jenni is the right way to do things!), he should be keeping a timesheet. Ask for him to send you a copy, together with his standard hourly rate for each task (for example, he may be charging £75 - £125 per hour for completing a tax return, but he should only be charging £15 - £20 an hour for bookkeeping). This should clearly state what he's done and how manty hours it took him. You can then start to look at what is reasonable (feel free to send me acopy and I'll have a look at it for you if you like, no charge

). For example if it took him 4 hours to send a 4 line e mial that didn't involve any research etc......

£350 for a VAT return seems high, even my biggest client does pay anywhere near that figure. Did you just give him a carrier bag/ box full of receipts? If you did, there may have been a lot of bookkeeping to do as well?

An overall bill of £6,000 is definitely way too much

If you can, it's better to sort this out locally and keep the threat of the institute (if he's qualified) as a backstop, failing all else.

Please feel free to PM me if you wnat me to look through anything for you, free of charge

Jaydee · Apr 12, 2008

Janie

Sorry to hear of your predicament.

The problem here is the lack of transparency of fees. It is impossible to say how much the advice should have cost because no forum users know the amount of work involved but the point is that when the invoice arrived, you should not have been surprised.

I guess the analogy is Lexus cars are not expensive because Skodas are cheap, but when you buy a Lexus, it has a price in the window.

OK so you were not on a fixed fee, but the accountant should have understood that an invoice of this size would be unwelcome in your circumstances and appraised you before they completed the work - you would then have had the choice to pay for the Skoda version elsewhere!

I charge my time out significantly in excess of Estimator's "international" rates of £80/hr and rarely complete a VAT return for less than £350 - but that does not make me expensive and my clients are not surprised when they receive their invoice because all rates are agreed in advance.

I would suggest the following:
1. Definitely request a detailed time breakdown of the work carried out in support of this invoice.
2. Check that the accountant has not doubly recovered time that has already been charged on the VAT return invoices - for instance if this large invoice is supported in part with book-keeping in the preparation of the draft accounts, it is difficult to see how the VAT returns already paid for could be accurate if the book-keeping had not already been done and paid for.
3. Dispute the invoice in writing to the partner dealing with complaints - their details should be shown on the more recent engagement letters that you have.
4. Refer the firm to the following statement in their engagement letter - "our fees will be charged separately for each main class of work and will be billed at appropriate intervals during the course of the year". If they have just run up £5,000 of time - what have they done for it without doubly recovering - if this is the result of a backlog of unbilled time then they have broken their own rule about billing "at appropriate intervals" and also given that you have been receiving quarterly invoices there would be no way that you could realise that the backlog was being built.

I hope that they see some sense.

HAZEL B · Apr 12, 2008

I agree with Jaydee, ask in writing for a full breakdown then you can work out what to do next and come back to the forum for futher advice if you need it.

Good luck.

taxattack · Apr 12, 2008

I agree with other postings re the apparently extortionate level of fee, and the billing arrangements, and endorse the advice to obtain a breakdown of time spent (and by whom), and to complain in writing. Find out which professional body the firm belongs to, and what dispute procedure they have.

I also endorse Jenni's comment that the invoice is presumably addressed to the limited company, and is not therefore your direct personal responsibility.

I also have another concern about the advice you have received, ie to split the business in order to avoid vat. This sounds like an artificial separation, unless it has been done with great care and subtlety, in which case the advice may be negligent.

Good luck

Chris

hgc services · Apr 13, 2008

Hi

Firstly, I would say that your accountant should have clearly laid out the fees involved with the set up of two limited companies. However, did you ask the question before you agreed to go ahead with the work?

I envisage that your accountant has charged you roughly the following:

2 x Limited company set ups £150
2 x 4 quarterly VAT returns @ £350 per VAT return = £2800
Personal Tax Return per £400 per director = £400 (assumed only one director)
Annual Return for company = £300

The cost of the above is £3650

Judging on the above that leaves roughly £1350 for two limited company accounts which a basic set would cost around £750.

I agree that the charges that he has charged are on the high side. However, we need more information to determine this:

1) Did your accountant prepare the Payroll for the company, I assume that the salons had employees, was this included in the £5000? Were any P11d's prepared?
2) How many different directors are there in the two companies as I assume that your accountant prepared all of the tax returns. How complex were these tax returns?
3) Was the records that you gave him up to standard for the VAT returns, or was he preparing these from scratch?

This only touches the surface. You need to ask your accountant for a full breakdown of the costs that he has charged you.

Good Luck

Chris

DFL · Apr 13, 2008

Seems very harsh, as does the pop at the accountants who give a lot of their time on here without ulterior motives.

Abacus Accountants · Apr 13, 2008

The fee does seem very high and even if it is justifiiable the accountant should know better than to land you with such a large bill in one go.

I should hope that you would be able to come to an agreement with the accountant to settle the fee. Your success or otherwise in reducing the fee will depend on the circumstances and information contained in the accountant's fee breakdown.

Arrange a meeting to discuss the fee. Make it clear that you want to reach agreement at this meeting. Hold the meeting at your (or neutral) premises and present your case using facts drawn from the engagement letter and their knowledge of your circumstances. Keep discussions objective and to the point.

Be reasonable with your expected outcome. You may well be able to agree a discount but not down to a level that you would be 'happy' to pay. Try to raise the funds to pay them off in full so that you can move on to an accountant that charges more appropriate fees. Your position will be weakened if you want to pay the bill in instalments.

Complaining to a professional body (if any) may not provide you with an acceptable solution. Again it depends on the circumstances but unless the accountant has acted outside of the rules of the institute you will not get a great deal of support from them.

I hope that you find a quick and acceptable solution.

Regards

Andrew

taxattack · Apr 14, 2008

Janie

I'm still puzzled by the vat advice. The following questions occur to me:
Why was it a year before you were advised to split the business?
Was the option of annual accounting discussed, which would have reduced the number of returns to complete?
Was rent-a-chair discussed?

Have sent you a pm.

Chris

hgc services · Apr 14, 2008

DFL said:
Seems very harsh, as does the pop at the accountants who give a lot of their time on here without ulterior motives.

I was not trying to be harsh just give a breakdown of how I thought the accountant would have split the cost.

I work for a practice myself, so understand that what was invoiced is high, but that is assuming that everything was straight forward and there were no complications!

Chris

DFL · Apr 14, 2008

Not you Sir, your post was entirely reasonable, I was referring to this:

Quote: I see this argument about fees a lot on this forum, accountants here who pile in and swamp newbies are noticeable by their absence when someone is in trouble.

Offer him £2K final settlement? Unquote.

Fernhurst Solutions Ltd · Apr 14, 2008

hiya janie78 ..... did you have a chance to think about what i pm'd you?

janie78 · Apr 14, 2008

Thanks for the advice. I'llbe the first to admit that i'm great at managing the operational and technical side of my business but when it comes to the accounts, I can keep them in decent order and I do all of my own payroll but have no idea what I should be doing with regard to being tax efficient, structuring my business to be more profitable, or how much accountants should charge - which is why a assumed that as the figure in the cashflow forecast was higher than my previous accountant (at £150 per month compared to £75 - and he had already warned that he's be more expensive than I was currently paying), that was a good figure to work from!! Learned a valuable lesson there! Always get an actual figure in writing before you start. And at a fixed fee!!

As I mentioned, i'd done my own payroll. and the paperwork was reaching them in files and in date order, all separated into the relevant sections! Just to clarify - the fee i'm being charged is for the year running up to the separation of the businesses, during which time we (and He) knew we were struggling as ONE limited Company, and I did all of the work in forming the new companies! He's had no dealing with me since they have been up and running because of the huge, undisputed bill!!!

Thanks again, I'll keep you updated!

Jane

janie78 · Apr 14, 2008

Thank you! I can understand fully that some accountants will charge much more than others, but I agree with you on the Lexus/Skoda analogy! My business is so small,with such a low turnover, and although it's hit some problems over the last year or so, they have been simple mistakes, that although have had disasterous consequences, have been relatively starightforward to rectify. I feel that the accountant should have seen that the cost of his services would have been far too high to justify the advice given. The fact thatI do my own payroll and the majority of the book keeping myself should have made it obvious that all i really needed was some good advice and my year end sorted - I feel that he's put too high a price on whathe feels is infinite wisdom!

Thanks again

Jane

Jezclayton · Apr 15, 2008

taxattack said:
Janie

I'm still puzzled by the vat advice. The following questions occur to me:
Why was it a year before you were advised to split the business?
Was the option of annual accounting discussed, which would have reduced the number of returns to complete?
Was rent-a-chair discussed?

Have sent you a pm.

Chris

I am also puzzled by the tax advice. Isn't splitting the business solely for the purpose of avoiding VAT exactly what it says, i.e. tax avoidance? I seem to recall a similar situation with a launderette owner and the Inland Revenue deemed all businesses to be one.

As for the bill, something doesn't seem right. After all, why let such a large amount accumulate before billing a client that you know has poor cash flow.

I wouldn't pay a penny without a full breakdown and proper justification for the delay in rendering the charge.

bizkid · Apr 15, 2008

I used to work for an accountancy practice before moving back into industry practice. I know that fees should normally be worked on the basis of time spent on the client. However, it is usually the junior who preps all the donkey work and the partner signs it off. VAT returns are great at bringing in the money because people think it's a landmine, whenever I do my employer's VAT returns it takes maybe 2 hours.

I'd report them to whatever associated body they belong to, usually ACA,ACCA,FCMA, or CIMA. Practices have to go through a schedule of criteria before they can use those initials and so if they get too many they can come under investigation maybe even struck off.

Letter of engagement should have been looked over as it details what they are going to do for you.

I know that my time used to be charged out at £5 for 3 minutes. And that was very low because the firm attracted the SMEs.

Accountants now have to abide by strict corporate governance codes to reduce situations like these.

I'd also ask him for a copy of the timesheets as you are entitled to see it. Tell them that you are taking it for an independent person to view.

I've been given really messy accounts but even they only take maybe 1.5 days. You might want to check to see how much of the partners time has been put onto your file as I know that sometimes they try to bump up the fees that way.

Anything else you need to ask feel free

hgc services · Apr 15, 2008

Sorry DFL thought you were refering to me!

MikePage · Apr 15, 2008

Just to add my 2p worth :

The fees do sound to be very high; not even close to what I would expect on any interpretation of the work done.

When an Accountant gets involved with the VAT Returns assuming we are not talking arrears & doing current Qtr. The first Qtr may have more work involved BUT then the Acct says to the Client From now on I want you to do XY&Z and the subsequent Returns become much simpler & quicker to do. ( Also the Acct will often write off the extra time in Qtr 1 as an investment into a long term client relationship)

For doing this work an Acct. will be charging the Bookkeeping Rate Maybe £15 to £25 per hour Certainly no more.

Having done the Qtrs. VAT Returns The Annual Accounts fall out very simply as the Acct has balanced the system & resolved any queries Qtr. By Qtr.

As previous posters have said : Write & ask for fee breakdown : Time taken & charge rates : Needs to be written & not phone calls. I dont know what part of the country you are based in, but either someone from this forum or a local accountant used by one of your friends would give you couple of free hours to discuss the situation face to face. If you are being hassled with legal threats, consider a visit to your local CAB unless you know a friendly local solicitor most sols. give a free first meet.

I also echo the concerns expressed above regarding splitting a business to avoid VAT I would get fresh advice on this.

Lastly Good Luck

Regards

[FONT=&quot]Mike Page[/FONT]

Basement_Studios_Ltd · Apr 16, 2008

crazy prices, if you need a quote, we deal with lots of companies over the net/distances. We set fees in advance, so you know exactly what you will be paying - no little (or in in your case) no big 'extras'.

Rob

Apr 30, 2008

This is an interesting post as I have just received a large bill from my accountants for £2000 in addition to payments we have already made within the last few months totalling £600. We are a limited Company, so end of year return and personal tax return but no VAT to deal with just yet (although looming)

I haven't been provided with a time sheet so will be asking for one today but am I likely to be charged for this?

Also, if I refer this to the ombudsman, will I incur additional charges from my accountants (I know that the ombusman will charge a small fee) but does anyone know whether the accountant are allowed to charge me even more for the extra work they will incur if we have the case reviewed. Are they allowed to cahrge some sort of penalty?

They are Chartered Acountants if that helps.

Sorry to hijack thread but thought that the information might be helpul for the op too

new2bus · Apr 30, 2008

You say "made within the last few months totalling £600", what was this for if you don't mind me asking?

I notice you do franchising, so was this related to that? "I am planning to change from my current Accountants to a different firm which specialises in accountancy for the franchise industry." is from an earlier thread

Did the accountant indicate likely charges that would occur for services rendered?

Has anything over and above normal accountancy occurred?

How large is the Accountants, is it a major High Street branch or one man and his wife?

(by the way, love your web site design)

I take it you felt surprised at the amount, but it is very important to always discuss at length fees and payment structures, mainly because even within a single practice the fees will vary depending on the seniority and expertise of the partners imvolved. Some members of this forum probably charge far higher fees than you have been billed and some a lot lower.

accountancyextra · Apr 30, 2008

Claire,

I think that there is a lot to do before reporting your accountant. Firstly, what did it say in your engagement about fees? Did it say you'll be charged £600 for this and £2k for that?

I always agree fixed fees with clients up front for all work so that there are no nasty surprises or arguments later about fees. However, this also means that I don't keep timesheets. If your accountant quoted you a fixed fee, chances are that he may not keep timesheets either. There is no obligation for accountants to keep timesheets unless they are billing by the hour, in which case I can't see any other way of producing invoices.

I can't really see how an accountant could charge you to defend his position to his own institute. However, before going down that route, I'd make sure that I'd exhausted all other avenues of settlement (eg ask for a meeting with a partner to explain)

letski · Apr 30, 2008

Reading this a little after the event, alarm bells started ringing when you said about the VAT advice you had been given. It really does sound like it could be artificial separation which could get you into trouble.

Letski
Chartered Accountant

HAZEL B · Aug 20, 2008

Hi

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